Is Open Source Right for Payroll Software?

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By Dave Foxall

6 Open Source Payroll Pitfalls to be Avoided

Open source is an interesting label. For many it means flexibility, control, low cost, and freedom from vendor lock-in—all facets that make for attractive marketing. However, much of open source’s positive reputation derives from two distinct market segments; either the large-scale corporate server setup such as Apache, or the more individual (even home use) software such as Linux and Firefox. When it comes to business payroll solutions though, organizations are actually searching somewhere in between these two extremes; and on closer inspection, not all the touted benefits may apply. Of course, there are strong open source applications which can be the best choice depending on specific requirements, but there are risks that balance the opportunities. In fact, as a report from Ernst & Young (E&Y), Open Source Software in Business-Critical Environments, states, “The question is not whether companies and public institutions will use open source software in the future, but rather how they will do so”. That said, a carefully-balanced look at these solutions is necessary; replete with an understanding of the exact series of pitfalls most likely to be faced—partnered with a set of recommendations to minimize the risks of open source payroll software.

Open Source Payroll Software Pitfall #1: Strict Licensing

Open source software is sometimes erroneously referred to as unlicensed. In fact, it is the terms of the license that establishes the software as open source—thereby allowing free availability and source code access. As such, any organization that wishes to take advantage of open source payroll applications must be very mindful of these licensing issues. E&Y agrees, warning against integrating systems without considering the license implications and stating that, “If, under a particular license, open source code is integrated into in-house software due to an oversight and then distributed outside the organization, this can result in the mandatory publication of the entire programming code for the in-house software." While undeniably less strict than proprietary vendor solutions, open source payroll applications do not enable a company to avoid software selection due diligence. In fact, it may even introduce one or two new issues that must be checked.

Open Source Payroll Pitfall #2: Lack of Governance

Because open source payroll applications are so easy to download and install, the E&Y report found many instances of unauthorized use of software within organizations by individuals and teams who had bypassed the procurement and IT departments and accessed open source applications directly. This is a risk in large organizations with autonomous local payroll management or in cases where the payroll team may decide to download and trial new solutions without consulting the in-house specialists. As E&Y point out, “Apart from the legal risk this poses, this can also result in a jumble of products and components that is hard to maintain in the long term and leads to increased costs.” While open source payroll (such as TimeTrex, Easy Time Control and PayPunch) may fill perceived capability gaps, far too often those applications also often contravene organizational IT governance. As such, E&Y recommend that a proper assessment be conducted (prior to selection) that includes evaluations of “open source specific characteristics such as the open source license, community size, developer heterogeneity, support availability, release management and legal ownership.”

Open Source Payroll Pitfall #3: Reliability and Security

The Open Source Initiative states, "The foundation of the business case for open-source is high reliability. Open-source software is peer-reviewed software. Mature open-source code is as bulletproof as software ever gets." However, open source payroll applications are rarely developed by collaborative communities of programmers (the foundation for the bulletproof claim). Instead, for the most part, payroll software is fashioned by small, in-house development teams; just as it is with commercial packages. The upshot is that open source payroll is not in and of itself any more or less reliable than closed source options. However, that should not mean that a robust selection and review process isn’t required. For instance, free access to the code raises natural security concerns for some organizations (due to dealing with highly sensitive, personal payroll data)—a fact that should lead to a rigorous set of security-related questions.

Open Source Payroll Pitfall #4: Technical Support and Aftercare

As E&Y warn, "Maintenance and support for an open source product is not always guaranteed." However, this is one area in which open source payroll solutions may not be substantively different than their more commercial cousins. In fact, E&Y distinguish between two types of development projects that might require support; "Those led by organizations and those coordinated by a decentralized group of developers." In the latter instance, support can be prompt and cost-efficient but carries no guarantees as to either accuracy or availability. Organization-led payroll software solutions on the other hand are likely to have support options in line with a service level agreement (SLA), but they may too (in the absence of the license fee) be charged for an add-on service.

Open Source Payroll Pitfall #5: Subversive Vendor Lock-In

Access to the source code can reduce dependency on the payroll software provider for support, changes, updates and other maintenance issues—thus avoiding the long-term locked-in scenario. However, this potential benefit can only be leveraged when there is a degree of technical expertise; either developed in-house or acquired by hiring external capacity. As such, the in-house option may be cost-effective depending on the scale of the organization and its level of open source adoption. Conversely, the external route can simply shift the reliance from a traditional vendor to a consultancy. As the E&Y report points out, “At the end of the day, it is in the nature of software to create dependencies.” The key for the organization is to minimize where possible the reliance on individual suppliers.

Open Source Payroll Pitfall #6: The Free Lunch

Calling open source software free is a popular (albeit not always accurate) description. Namely, when it comes to business applications (including payroll), while the code may be open the software has been developed for commercial purposes—effectively meaning that the developer wants to see a return on their investment. Certainly cost savings are a major opportunity with open source, but as E&Y point out, a software license is only a small component in the total cost of ownership (TCO) of payroll. In fact, the hidden costs identified by PricewaterhouseCoopers in a report (e.g. indirect labor costs, non-labor costs, and system maintenance) still apply regardless of license. Add to this any possible extras such as on-going support, add-on modules, and software upgrades and the expense compared to a traditional offering may start to balance out. While open source payroll software can create significant reduction in TCO, it is by no means a given. As always, a proper assessment must be made to determine if the pros outweigh the cons for any organization.

Open Source Payroll Software – The Bottom Line

Open source payroll software does offer some real opportunities for the organization willing to embrace it. However, for the company looking to fully leverage the advantages; it is not necessarily an easy route to take. Through careful research and analysis, Ernst & Young have come to the conclusion that an optimistic but cautious apporach is necessary; citing, “Today, there are practical principles for both perspectives that make the controlled use of open source software even in business-critical environments an option worth considering.” Indeed, one way to fully air the issues and ensure a fit between the organization and open source payroll is to develop an open source strategy that sets an agreed direction on issues such as guidelines and targets for adoption, procurement protocols, evaluation criteria, and an overall risk analysis. Ultimately however, whether an open source payroll solution is the right choice will depend on the particular organization and its specific business needs.

Open source payroll applications are rarely developed by collaborative communities of programmers (the foundation for the bulletproof claim). Instead, for the most part, payroll software is fashioned by small, in-house development teams; just as it is with commercial packages.